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Here's Why Shares of Textron Soared Higher on Wednesday

After a difficult second half of 2018, the industrial conglomerate is firing on all cylinders.

What happened

Shares of Textron(NYSE:TXT) jumped 8% on Wednesday after the industrial conglomerate reported better-than-expected quarterly earnings fueled by strong aircraft delivery numbers and solid contributions from all of the company's numerous businesses.

So what

Textron reported first-quarter earnings of $0.76 per share, ahead of the consensus $0.68 per share expectation on revenue of $3.1 billion, was about $70 million shy of consensus. The company also reiterated its full-year guidance for $3.55 to $3.75 per share in earnings and up to $800 million in cash flow.

Textron's Cessna unit is banking on new designs in 2019. Image source: Textron.

Aviation sales led the way for Textron, up 12% year over year, with deliveries up and an EBIT (earnings before interest and taxes) margin of 11%, significantly better than last year's 7.1%. Sales at the company's Bell helicopter unit were down slightly due to lighter deliveries, but unit margins improved year over year by about 200 basis points, thanks to a higher mix of military deliveries.

Aviation and Bell also reported healthy book-to-bill ratios of 1.18 times and 1.62 times, respectively.

The company's industrials segment, responsible for a lot of Textron's issues in 2018, remains weak, but its 5.5% margin for the quarter was only slightly below expectations, providing reason to hope the business is getting back on track.

Now what

About the only thing I see in this quarter for investors to gripe about was Textron's failure to raise full-year estimates, but if this sort of performance continues, Textron's guidance appears conservative. A big wild card remains the certification of Cessna's Citation Longitude midsized business jet, which is expected to fuel full-year revenue growth.

The certification has faced unexpected delays, due in part to the partial government shutdown, and analysts have worried that, with the U.S. Federal Aviation Administration currently focused on Boeing's 737 MAX issues, further delays are possible. But Textron CEO Scott Donnelly said Wednesday that Textron expects final certification in the current quarter, with deliveries starting in the second half of the year.

There's still potential for Textron to climb higher.

Author

Lou has covered aerospace, transports, and the industrials for more than two decades, developing extensive contacts including industry leaders, consultants, regulators, and labor representatives. When not arguing on Twitter or writing about the markets, Lou spends his free time out in nature, complaining online about the Baltimore Orioles or Watford FC, or listening to early 1990s alt rock.
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